Blockchain Technology transform Real Estate Market

The power of blockchain is directly applicable to the real estate market. Blockchain has the potential to improve the property search process, accelerate pre-sale due-diligence, ease leasing and subsequent property and cash flow management, and finally empower informed decision-making. As a hotspot for blockchain, the Asia-Pacific region could soon expand this technology's application into various industries including real estate, and specifically in the commercial sector.

Blockchain Technology and Real Estate Market

For real estate to compete effectively as an asset class, investors are demanding, and expecting, ever-greater levels of transparency – in terms of legal and regulatory enforcement as well as speedy and secure transaction processes. The costs associated with trading real estate are much higher than in other asset classes, often resulting in a wide bid-ask spread – the difference between buyer and seller pricing expectations. Furthermore, transactions are often carried out via time-consuming face-to-face interactions with various parties typically involved in the transaction process, e.g., lawyers, bankers and brokers.

Blockchain technology offers a means to improve transparency in the real estate industry, in particular, with Smart Contracts, which are essentially programs coded in the blockchain. When conditions specified in an encoded contract are met, the transfer of money or assets between parties is automatically triggered, reducing the costs and friction associated with these transactions.

Smart Contracts offer a means to streamline commercial real estate investment through a new form of securitisation. Smart contracts can enable investors to buy and sell shares of a building with rental income paid out to token holders.

"Blockchain works with any transaction or interaction where property rights and timing matters."

Kausik Rajgopal, McKinsey

In real estate, PropTech innovators have sped up the process of information exchange, but the market is still largely dependent on intermediaries. Transactions require time, proximity and relationships. By contrast, a distributed ledger such as blockchain has the capacity to send data, without friction, to all relevant parties. Early assessments of the potential applications of blockchain in real estate include lease transactions arranged directly between lessor and lessee; land acquisitions and dispositions including title and parcel details; title, ownership and planning histories being available during the acquisition and due diligence process; and the exchange of maintenance records in buildings. Imagine also a world of digital asset management, which registers ownership and manages and distributes revenue rights directly.

Consider the minimum number of parties involved in a simple, residential transaction:

Much of the data held by these parties, necessitating their participation in the process, is public but is stored in multiple private silos. A lawyer is paid to collect all this information. Other data is gathered by the Credit Rating Agencies but is duplicated in the lawyer's searches. Payments are made to multiple parties through multiple banks. Nearly all of this information can reside on a distributed ledger, referenced to the single asset (the property) and available almost instantaneously to every actor. Once agreed, the exchange of assets (ownership for money) and fees can also happen instantaneously. Of course, it is necessary that the parties put information into the distributed ledger rather than into their siloed databases. (No doubt lawyers will also keep files copies, but these will have less authority.) However, the huge savings in time and money might make it economically attractive - one day - to do so. There are several property-based distributed ledger projects being pursued by a variety of sources. The initial focus of many projects has been to improve the efficiency and transparency of the registration and exchange of title deeds.

Future of Real Estate Market with Blockchain Technology

The real estate industry is able to use blockchain or distributed ledger technology to build applications, including smart contracts, and services that bring the benefits of a new technology both to itself and to the mainstream. Even if smart contracts do not radically transform leasing and sales, blockchain proponents claim that there will be:

More information, available instantaneously;

Less error, less duplication, less human inefficiency leading to much lower costs;

greater transparency (through consensus and distribution) of prices and contracts;

Potentially reduced transaction times; and

Greater market liquidity and turnover

The blockchain is also argued to be the natural medium for feedback from the Internet of Things and, with advances in machine learning and AI, from big data-driven analytics.

The real estate industry uses both public sector and private, or proprietary, data. For the industry to incorporate a shared ledger, it needs a system that is, correspondingly, both public and private.

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